Capital Markets Review
Fall 2017

Economic Outlook

Despacito (Slowly)

With sympathy for our fellow citizens in Puerto Rico, we decided to use part of the island’s musical popular culture in the title of our commentary, especially since it serves our outlook rather well.

One of the hallmarks of this recovery has been its apparent lethargy. Comparisons to historical rebounds by some have it coming up short, even as it’s cut unemployment to very low levels and is approaching record durability.

Equity Portfolios

Restraint Today May Avoid The Morn’s Headache

Equity markets have remained robust, both in the U.S. and abroad.

Outside our borders most central banks have maintained low interest rates, which support both earnings growth and the multiples that equity investors apply to those cash flows. Further, fiscal policy – or various governments’ net budget positions – has also moved away from a restrictive posture that previously hindered growth. Finally, the large negative impact of collapsing commodity prices is behind us, for the time being.

Fixed Income Portfolios

Quantitative Tightening In An Era Of Moderate Inflation

The Fed is progressing deliberately through the early stages of quantitative tightening, with four interest rate increases already in place and additional rate hikes and balance-sheet reduction in the cards. Headline and core inflation figures continue to be muted, causing bond yields to stay below
their end-2016 levels. We believe inflation is being underpriced by the bond markets, and continue to favor shorter maturities in our strategies as one mechanism to preserve capital in a rising-rate environment.